Fourth International, December 1949

V. Grey

“Break-Even” Point – Grey’s Reply

Although I wrote Steel: Achilles of US Industry in two parts, it was with the purpose of publishing it in a single issue of the FI. The second part supplemented and corrected the first. It was obviously from considerations of space that it had to be published in two separate issues. Arne Swabeck in Some Comments On Falling Rate of Profit has added to, and elaborated on a few points raised in the first part which the second part also discusses more or less in the same vein.

However there is one important criticism, which, because it involves theory, must be reviewed and considered more deeply:

“If not directly, at least indirectly, there appears to be an implication that the tendency of the falling average rate of profit is synonymous with what the steel barons proclaim as the ‘break-even’ point for their industry ... It would be a mistake to identify the industrialists’ ‘break-even’ point – arbitrarily and artificially established – with the tendency of the falling rate of profit. It represents rather a page from the chapter of skullduggery and swindles perpetrated by these predatory capitalists essentially for the purpose of defrauding the steelworkers of a livable return on their toil.”

I quite agree that it would be a mistake to identify the two. But as I said, and repeat, they are closely connected.

The rate of profit declines because constant capital is a larger and larger component of the total capital, and variable capital (money paid for value-creating labor) a relatively smaller and smaller one. The “break-even” point rise’s because the fixed part of constant capital – i.e., the plants, machinery, mines, etc – is continually rising, and the circulating part (raw materials) relatively diminishing.

Many corrections and modifications can be made for these two statements. But in general they are a correct theoretical proposition. And the rising’ “break-even” point, though certainly not identical with the falling rate of profit, is closely connected with it and is caused by similar factors.

Naturally the “break-even” point does not rise at the same rate that the rate of profit declines. (It may rise at a much faster rate!) But it rises for the same general reason: the concentration of capital in the means of production and the growing preponderance of the products of labor over the laborers.

True the actual “break-even” point as announced by the corporations is “arbitrarily and artificially established.” But so is the rate of profit also! And the declining rate of profit is still a correct theoretical proposition. When a corporation says it makes a profit of nine percent on capital, the real profit in terms of new values created by the workers over and above their wages and the replacement of all equipment, materials, etc., may be twelve, fifteen, eighteen percent or higher! The lush salaries, the $75 thousand pensions, the various slush funds and sinecure salaries for brothers-in-law are considered part of expenses, not profits. Nevertheless, there is such a thing as a rate of profit, just as there is such a thing as a “break-even” point – even though they both exist behind a façade of double talk.

Arne Swabeck seems to believe that the emphasis on the “break-even” point in steel, should be rather on its arbitrariness, and the skullduggery and swindles which it conceals. For the purposes of a Nathan Report, for the purposes of exposing the capitalists, yes. But for an evaluation of a trend, no. The capitalists have many bookkeeping tricks and it is good for us to be aware of them. Some of them have more perfected skullduggery than others. But they all try to keep up to the minute in these things, just like in the use of machinery. So, as between companies the crookedness tends to cancel out.

Take one of the most obvious and ancient forms of their double-talk. The first $3½ million earned by a $100 million steel plant – over and above all other expenses – is put on the debit side of the ledger. It is surplus value, produced by the workers, but it is not regarded as profit but as an expense. It represents what the capitalist owes himself as interest for the loan of his own capital!

It sounds a little fantastic even from a bourgeois point of view. But the practice is a hallowed and sacred one. It is part and parcel of capitalism, and of course, where outsiders, hold 3% percent bonds in the company the $3½ million does not go from one pocket to the other of the same capitalist, but represents a very legal relationship between different capitalists. At any rate this $3½ million must be added to the $10 million or so in depreciation, and other items, to make a final sum (i.e. the “break-even” point), whose value in commodities must be produced and sold if the business is to keep going, and if capitalist legality is to be maintained.

In England, for example, many concerns have gone below the so-called “break-even” point but they are still in business. To stay in business, however, they have had to default on many obligations, make the brothers-in-law go to work etc. All this proves that there are no absolutely “hopeless situations”, but indicates that there is a crisis.

At any rate, regardless of just where the “break-even” point lies, it is obvious that in industry generally it is higher than it used to be. It is almost equally obvious that in steel it is higher than in other industries. If we had no other clue than the constant squawking of the steel officials about it, we might still be convinced. Why wouldn’t the capitalists of the other industries get into the act and join the chorus if it is such a good dodge (and it is) for stalling the tax collector and defrauding the worker? – Simply because the steel barons have the best arguments on this score as against their fellow capitalists. And that is the point.